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Judge Kicks Facebook's 'Sponsored Stories' Settlement To The Curb

A San Francisco federal judge doesn’t ‘Like’ the terms lawyers have agreed to in a class action lawsuit over Facebook‘s “Sponsored Stories” tool, which puts users’ names and photos into ads on the site based on things they have ‘Liked’ (including vats of sex lube). Lawyers for Facebook and for the plaintiffs had decided to settle the suit for $20 million plus change, with $10 million going to the class action attorneys, $10 million going to privacy-promoting non-profits through a cy pres fund, low five-figures for the plaintiffs, and a change to the privacy settings for all Facebook users, giving them more control over which ads they appear in.

Judge Richard Seeborg is giving the settlement a thumbs down until Facebook and the attorneys who sued it can give him a better explanation of how they came up with $10 million as the right figure to settle the suit. “Why not $100 million?” he asked in a hearing earlier this month. ‘Or why not $0?’ might ask those skeptical about the privacy harm here.

The judge points out that the California “right to use my likeness” law that plaintiffs accused Facebook of violating requires a $750 payment to each injured party. In his order rejecting the settlement (without prejudice — meaning it may still be granted at a later date), the judge speculates on the difficulty of coming up with terms for a class action that affects 70 million people (the number of American Facebook users):

Plaintiffs offer the additional argument, in which Facebook vigorously joins, that any settlement calling for cash payments to class members is simply not practicable in this case, given the size of the class. For example, even paying each class member the modest sum of $10, might require a settlement fund of $1 billion (assuming a class size of 100 million), apart from administration costs. The issue this presents appears to be a novel one: Can a cy pres-only settlement be justified on the basis that the class size is simply too large for direct monetary relief? Or, notwithstanding the strong policy favoring settlements, are some class actions simply too big to settle?

The fact that Facebook did not object to the $10 million in attorney’s fees asked for by class action lawyers raised a red flag for the judge, who suggests in his opinion that the plaintiffs’ lawyers may “have bargained away something of value to the class” in order to have their own pay day.

“We continue to believe the settlement is fair, reasonable, and adequate,” says Facebook in a press statement. “We appreciate the court’s guidance and look forward to addressing the questions raised in the order. We are confident we can address the issues raised by the court without substantially revising the settlement.”

Seeborg’s order will be welcome to those who criticized the settlement as yet another payout for class action lawyers, as well as funding for “Facebook’s allies.” The judge wants either a new settlement or a new explanation for why the settlement reached by the lawyers should be approved, with a more fulsome legal and financial reasoning as to why $10 million is the magic number that will salve the privacy harm done. Seeborg criticized the “ on the fly” explanation given by Facebook’s lawyers during oral argument:

Facebook gave a rough estimate of plaintiffs’ potential recovery at trial, and applied a percentage discount for the uncertainties and expenses of litigation. Facebook then proposed discounting that figure by an additional amount to reflect the fact that, in class actions such as this, only a relatively small percentage of class members actually file claims and receive payouts from the settlement fund. That analytical approach would result in this cy pres settlement being analogous to one calling for direct cash payments to class members, but where any unclaimed settlement funds revert to the defendant. While such reversionary provisions are not necessarily prohibited, they are problematic…

Facebook’s calculations, provided on the fly during oral argument, are not binding on the parties, of course. They suggest at least the possibility, however, that a cy pres payment in the amount suggested prior to the reduction based on the percentage of class members that typically submit claims might be more appropriate.

In other words, the judge suggests that Facebook shouldn’t give itself two discounts when making its calculations for settling this suit.

So it’s back to the legal drawing board for attorneys on both sides of this case. They need to offer the judge a better reason for arriving at a $10 million cy pres fund beyond telling him that it’s the market rate to settle privacy lawsuits.

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In reading Judge Seeborg’s order denying the proposed settlement, he is clearly troubled by the fact that essentially no monies are going directly to class members and that the cy pres settlement amount (which should be related to actual past damages suffered by the class) seems to be a purely negotiated figure unrelated to past damages. The judge correctly rejects plaintiff’s argument that the injunctive relief obtained (a prospective change in Facebook’s policy that would give more control to Facebook users in the future) is of significant value and should be considered in assessing the fairness of the cy pres amount since the injunctive relief applies only to future conduct and is not a proper measure of past damages. The judge then goes on to turn that argument around and suggest, in a not too subtle footnote, that perhaps the “value” assigned to the injunctive relief ($103 million, representing what Facebook would earn in two years for use of the class member’s images) might be a reasonable “starting point” in calculating past damages, i.e. the appropriate figure for the cy pres payment. Whether the value assigned to the injunctive relief was an accurate figure or simply a figure inflated in a misguided effort to convince the judge of the overall fairness of the settlement likely will never be known. Nonetheless, the parties themselves have seemingly unintentionally given the judge a basis to arrive at a reasonable cy pres amount. It will be interesting to see how the parties try to extricate themselves from this box they now find themselves in. In any event, Judge Seeborg is not simply giving rubber stamp approval to the settlement, but is doing what was contemplated by the drafters of the Rules of Civil Procedure governing class actions; namely requiring the parties to provide adequate justification and evidentiary support for the fairness of the settlement. A legitimate and rigorous assessment of the fairness of the settlement is essential because of the preclusive effect of the settlement barring all similar claims. Kudos to Judge Seeborg.

I’m not satisfied Facebook and their CIA crew with NSA and Homeland security has burned out several labtop an cell phone devices out of jealousey an envy I joined this lawsuit. Perhaps the Federal Judge should award us with $750 thousand each that would satisfy me from all the anguish caused by these internet defamation reptiles..